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http://www.financialexpress.com/fe_f...tent_id=154068
Two things worry people. The first is the “carry trade”, which involves investors borrowing a low-yielding asset (often the yen) and buying a higher-yielding one. Past financial-market wobbles have been associated with periods when the carry trade was unwound. No one knows precisely how much capital is involved. But Tim Lee, of Pi Economics, reckons as much as $1 trillion may be staked on the yen carry trade. Were the yen ever to rise sharply (making the trade unprofitable), there could be hell to pay in the markets.
The second is the low cost of credit, and the rapid growth in credit derivatives, which allow investors to insure against default. The rise of the derivatives market has coincided with a very low default rate. Were defaults to rise, the ability of the markets to absorb losses (and clear trades) might be severely tested.
The second is the low cost of credit, and the rapid growth in credit derivatives, which allow investors to insure against default. The rise of the derivatives market has coincided with a very low default rate. Were defaults to rise, the ability of the markets to absorb losses (and clear trades) might be severely tested.